Wednesday, December 14, 2016

Uganda cuts rate another 100 bps,inflation seen on target

    Uganda's central bank lowered its Central Bank Rate (CBR) by 100 basis points to 12.0 percent as core inflation is expected to remain around the bank's target over the next year despite a pickup in inflation in November.
    The Bank of Uganda (BOU), which has now cut its rate by 500 basis points this year, left the band around CBR steady at plus/minus 3 percentage points and the margin on the rediscount rate at 4 percentage points so the rediscount rate will fall to 16 percent and the bank rate to 17 percent.
    Uganda's consumer price inflation rate rose to 4.6 percent in November from 4.1 percent in October while core inflation rose to 5.2 percent from 5.1 percent.
    The BOU attributed the rise in inflation to a sharp rise in food prices due to bad weather that affected food crop output. Food crops and related items inflation jumped to 7.1 percent from 1.7 percent in November from October.
    "Given that core inflation is forecast to remain around the medium term target of 5 percent over the next 12 months, and in line with efforts to keep the domestic economic growth momentum, the BoU believes that there is scope to continue easing monetary policy," the BOU said.
    Short term, the BOU expects inflation to be slightly higher due to higher food and fuel prices.
    Uganda's economy grew by an annual rate of 3.91 percent in the second quarter, slightly up from 3.86 percent in the first quarter, and while growth decelerated in October, the BOU said its outlook remained largely unchanged.
    Uganda's Gross Domestic Product is seen growing around 5 percent  in financial 2016/17, which began July 1, by 5.5 percent in 2017/18 and by 6.0 percent in 2018/19.
    In October the International Monetary Fund projected growth of 5 percent in the current fiscal year and 5.5 percent in 2017/18, supported by higher infrastructure spending after February 2016 elections, muted global growth weighed on sentiment and growth eased to 4.8 percent in 2015/16.
    Uganda's shilling began falling in October but has rebounded slightly in the last week. Today the shilling was trading at 3,585 to the U.S. dollar, down 5.9 percent this year.



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